Should you operate as a Limited Company in Ireland?

Operating as a Limited Company can offer entrepreneurs and business owners numerous advantages. However, it is vital to consider the potential drawbacks as well.

In this article, we will explore the pros and cons of a Limited Company in Ireland to provide you with a comprehensive understanding of this business structure. You can decide whether a Limited Company in Ireland is the right choice for your business by weighing the advantages and disadvantages.

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Pros of a Limited Company

Explore the ten advantages of a Limited Company in Ireland.

1. Company profits (after expenses) are taxed at just 12.5% (Corporation Tax)

One of the significant advantages of operating as a Limited Company is that the profits are subject to a 12.5% Corporation Tax rate. Ireland is an attractive location for many new businesses compared to other European countries.

2. Setting up a separate legal entity

By forming a Limited Company, you establish a separate legal entity distinct from yourself as an individual. This separation allows you to appoint yourself as a director and shareholder of the company, giving you control over its operations while maintaining a clear distinction between your personal affairs and those of the business.

3. Limited liability

Limited liability is a crucial benefit of operating as a Limited Company. It means that as a shareholder or director, your assets, including your home and savings, are generally protected from being used to settle any debts incurred by the company. This separation of personal and business liabilities provides financial security and helps mitigate personal risk.

4. More tax reliefs and benefits for directors 

Directors of Limited Companies have access to various tax reliefs and benefits to minimise their personal tax liability that is unavailable to individuals operating as sole traders or in partnerships. For instance, one tax benefit that our clients value is the Small Business Exemption Scheme, a €1,000 tax-free voucher for directors and managers, which can help reduce the company’s tax liability and increase your take-home income.

5. Great scope for financial planning

Operating as a Limited Company offers greater flexibility and financial and salary planning opportunities. For example, when directors decide how to pay themselves, they can take advantage of pension schemes designed for company employees, allowing them to contribute to their retirement funds tax-efficiently. This can lead to long-term financial security and enhanced retirement benefits.

6. More credibility in the industry

Being a Limited Company often enhances a business’s credibility and professional image. The “Ltd” or “Limited” designation after the company name signifies that it is a legally registered and recognised entity, which can instil confidence and trust among clients, customers, and potential business partners. This increased credibility can lead to more opportunities for growth and success.

7. Increased eligibility for government schemes and grants

Limited Companies may have increased eligibility for government schemes, grants, and incentives. Governments often offer specific support and financial assistance programs targeted at businesses operating as Limited Companies. These schemes can provide access to funding, training, research and development grants, and other resources to help your company grow and expand.

8. More likely to be approved for credit

Limited Companies generally have an easier time obtaining credit or loans than Sole Traders or Partnerships. Financial institutions and lenders often perceive Limited Companies as more stable and reliable entities, making them more inclined to approve credit applications. This increased access to credit can help businesses invest in expansion, equipment, or other essential needs.

9. More options for exit planning and succession

Operating as a Limited Company provides more flexibility and options for exit planning and succession. It allows for the easy transfer of ownership through the sale or transfer of shares, making it easier to bring in new partners, investors, or successors. This can facilitate smooth transitions in ownership and management, ensuring the long-term sustainability of the business. 

10. Partial protection over the company name

Registering a Limited Company in Ireland provides some protection over the company name. The Companies Registration Office (CRO) prohibits companies from using the same or similar name. Doing this reduces the likelihood of confusion and protects the reputation and goodwill associated with your business. However, it is important to note that the trademark process is different.  

Cons of a Limited Company

Explore the seven disadvantages of a Limited Company in Ireland.

1. The cost associated with setting up

Setting up a Limited Company can be more expensive than operating as a Sole Trader or partnership. There are costs associated with registering the company, ongoing fees for annual accounting compliance and year-end and bookkeeping services, and potentially higher professional fees for legal and financial services. 

2. More corporate filings and deadlines

Limited Companies are required to adhere to more corporate filings and deadlines. This includes submitting annual financial statements, annual returns, and other statutory filings to the relevant authorities. Compliance with these obligations can be time-consuming and may require the expertise of accountants or company secretarial services to ensure accuracy and timeliness.

3. The public has access to the company’s financial accounts

One of the downsides of operating as a Limited Company is that the public has access to certain financial information about the company. Irish Limited Companies must file financial accounts with the Irish Revenue Commissioners (Revenue) and the Companies Registration Office (CRO), which then become publicly available. This means that competitors, customers, suppliers, and other stakeholders can access and review the company’s financial performance and gain insights into its operations.

4. Hefty fines and penalties for non-compliance

Failure to comply with the compliance and regulatory requirements imposed on Irish Limited Companies, such as missing the Income Tax Return on the 31st of October each year, can result in significant fines and penalties. 

Missing filing deadlines, submitting inaccurate or incomplete information, or failing to meet corporate governance standards can lead to financial penalties and potential legal repercussions. It is essential to ensure timely compliance to avoid costly consequences.

5. Longer set-up process

Compared to other business structures, setting up a company in Ireland and closing down a company can be more time-consuming, complex, and costly compared to Sole Traders or partnerships. 

The incorporation process involves the following:

  • Fulfilling legal requirements, such as drafting and filing Form A1 and the company constitution
  • Appointing directors and shareholders
  • Having a registered business address in Ireland
  • Distributing share capital

Likewise, closing down, also known as voluntary strike-off, is a lengthy and administrative procedure involving paperwork and documentation to Revenue, the CRO, and a notice in a daily Irish newspaper. 

6. Directors have fiduciary duties

Directors of Limited Companies have fiduciary duties, which are legal obligations to act in the company’s best interests. This means directors must prioritise the company’s interests over their personal interests, avoid conflicts of interest, and exercise their powers and decision-making responsibly. Failing to fulfil these duties can result in personal liability and potential legal consequences.

7. You may lose ownership of your company if you sell shares

As a Limited Company owner, if you decide to sell shares to raise capital or bring in new investors, you may dilute your ownership stake. Selling shares means allocating a portion of the company’s ownership to other shareholders, potentially reducing your overall control and decision-making power. It’s important to consider the implications of selling shares carefully and ensure that it aligns with your long-term business goals.

Is it worth setting up a company in Ireland?

While the cons of setting up a company exist, they don’t outweigh the benefits and can vary depending on the specific circumstances and business objectives. Consulting with professionals and considering the particular needs of your business is crucial when deciding on setting up here.

Choosing the proper business structure is a crucial decision that can impact the success and growth of your enterprise.

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Our client services team are always happy to talk to you about what's best for your needs

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